Federal Register / Vol. 72, No. 180 / Tuesday, September 18, 2007 / Proposed Rules 53181 

Subpart—West Indian Fruit Fly 

[Removed] 

7. Subpart—West Indian Fruit Fly, 

consisting of §§ 301.98 through 301.98–

10, is removed. 

Subpart—Sapote Fruit Fly [Removed] 

8. Subpart—Sapote Fruit Fly, 

consisting of §§ 301.99 through 301.99–

10, is removed. 

PART 305—PHYTOSANITARY 

TREATMENTS 

9. The authority citation for part 305 

continues to read as follows: 

Authority: 7 U.S.C. 7701–7772 and 7781–

7786; 21 U.S.C. 136 and 136a; 7 CFR 2.22, 

2.80, and 371.3. 

10. In § 305.2, the table in paragraph 

(h)(2)(ii) is amended by removing, in the 

entry for ‘‘Areas in the United States 

under Federal quarantine for the listed 

pest’’, the entries for ‘‘Any fruit listed in 

§ 301.64–2(a) of this chapter’’ and ‘‘Any 

article listed in § 301.78–2(a) of this 

chapter’’ and adding a new entry in 

their place to read as set forth below. 

§ 305.2 Approved treatments. 

* * * * * 

(h) * * * 

(2) * * * 

(ii) * * * 

Location Commodity Pest Treatment 

schedule 

Areas in the United States under Federal 

quarantine for the listed pest. 

* * * * * * * 

Any fruit or article listed in § 301.32–2(a) 

of this chapter.

All fruit fly species of the Family 

Tephritidae.

IR. 

* * * * * * * 

* * * * * 

§ 305.32 [Amended] 

11. Section 305.32 is amended as 

follows: 

a. In the introductory text, by 

removing the word ‘‘fruit’’ and adding 

the words ‘‘berry, fruit, nut, or 

vegetable’’ in its place, and by removing 

the citation ‘‘§ 301.64–2(a)’’ and adding 

the citation ‘‘§ 301.32–2(a)’’ in its place. 

b. In paragraph (a)(1), by removing the 

words ‘‘Mexican fruit fly’’ and adding 

the words ‘‘the fruit fly of concern’’ in 

their place, and by removing the words 

‘‘the fruit’’ and adding the words ‘‘the 

regulated articles’’ in their place. 

c. In paragraph (a)(2), by removing the 

words ‘‘fruit, except that fruit’’ and 

adding the words ‘‘regulated articles, 

except that articles’’ in their place. 

d. In paragraph (a)(3), by removing the 

citation ‘‘§ 301.64–6’’ and adding the 

citation ‘‘§ 301.32–6’’ in its place. 

e. In paragraph (d), by removing the 

words ‘‘Mexican fruit fly’’ and adding 

the words ‘‘the fruit fly of concern’’ in 

their place. 

f. In paragraph (e)(2), by removing the 

words ‘‘Mexican fruit fly’’ and adding 

the words ‘‘the fruit fly of concern’’ in 

their place. 

g. In paragraph (i), by removing the 

words ‘‘Mexican fruit fly’’ and adding 

the words ‘‘fruit flies’’ in their place, 

and by adding the words ‘‘and 

vegetables’’ after the word ‘‘fruits’’. 

§ 305.33 [Removed and reserved] 

12. Section 305.33 is removed and 

reserved. 

Done in Washington, DC, this 12th day of 

September 2007. 

Kevin Shea, 

Acting Administrator, Animal and Plant 

Health Inspection Service. 

[FR Doc. E7–18316 Filed 9–17–07; 8:45 am] 

BILLING CODE 3410–34–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

RIN 3064–AD19 

Assessment Dividends 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Advance notice of proposed 

rulemaking (ANPR). 

SUMMARY: The FDIC is seeking 

comments on alternative methods for 

allocating dividends as part of a 

permanent final rule to implement the 

dividend requirements of the Federal 

Deposit Insurance Reform Act of 2005 

(Reform Act) and the Federal Deposit 

Insurance Reform Conforming 

Amendments Act of 2005 (Amendments 

Act). The existing FDIC regulations on 

assessment dividends will expire on 

December 31, 2008. 

DATES: Comments must be submitted on 

or before November 19, 2007. 

ADDRESSES: You may submit comments 

by any of the following methods: 

• Agency Web Site: http:// 

www.fdic.gov/regulations/laws/federal. 

Follow instructions for submitting 

comments on the Agency Web Site. 

• E-mail: Comments@FDIC.gov. 

Include ‘‘ANPR on Assessment 

Dividends’’ in the subject line of the 

message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

business days between 7 a.m. and 5 p.m. 

(EST). 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Public Inspection: All comments 

received will be posted without change 

to http://www.fdic.gov/regulations/laws/ 

federal including any personal 

information provided. Comments may 

be inspected and photocopied in the 

FDIC Public Information Center, 3501 

North Fairfax Drive, Room E–1002, 

Arlington, VA 22226, between 9 a.m. 

and 5 p.m. (EST) on business days. 

Paper copies of public comments may 

be ordered from the Public Information 

Center by telephone at (877) 275–3342 

or (703) 562–2200. 

FOR FURTHER INFORMATION CONTACT: 

Munsell W. St. Clair, Senior Policy 

Analyst, Division of Insurance and 

Research, (202) 898–8967 or 

mstclair@fdic.gov; Missy Craig, Senior 

Program Analyst, Division of Insurance 

and Research, (202) 898–8724 or 

mcraig@fdic.gov; or Joseph A. DiNuzzo, 

Counsel, Legal Division, (202) 898–7349 

or jdinuzzo@fdic.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In October 2006, the FDIC issued a 

temporary final rule to implement the 

dividend requirements of the Reform 


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1 71 FR 61385 (October 18, 2006). 

2The Reform Act was included as Title II, 

Subtitle B, of the Deficit Reduction Act of 2005, 

Public Law 109–171, 120 Stat. 9, which was signed 

into law by the President on February 8, 2006. 

3 12 U.S.C. 1817(e)(2). 

4This provision would allow the FDIC’s Board to 

suspend or limit dividends in circumstances where 

the reserve ratio has exceeded 1.5 percent, if the 

Board made a determination to continue a 

suspension or limitation that it had imposed 

initially when the reserve ratio was between 1.35 

and 1.5 percent. 

5The dividend regulation must also include 

provisions allowing a bank or thrift a reasonable 

opportunity to challenge administratively the 

amount of dividends it is awarded. Any review by 

the FDIC pursuant to these administrative 

procedures is final and not subject to judicial 

review. 

6 71 FR 28804 (May 18, 2006). 

7 12 CFR 327.53. 

8Appendix A describes the two methods in more 

detail, using formulas. 

Act.1 At the time, the FDIC stated its 

intention to initiate a second, more 

comprehensive notice-and-comment 

rulemaking on dividends beginning 

with an advance notice of proposed 

rulemaking to explore alternative 

methods for distributing future 

dividends after the temporary dividend 

rules expire on December 31, 2008. 

The possibility of a dividend before 

the temporary rule expires appears 

remote. In fact, because the FDIC has the 

ability to lower assessment rates below 

the base assessment rate schedule (2 to 

4 basis points for institutions in Risk 

Category I), the FDIC can, if it chooses, 

reduce the probability of a dividend 

occurring thereafter. 

Reform Act Requirements 

The Federal Deposit Insurance Act 

(FDI Act), as amended by the Reform 

Act,2 requires that the FDIC, under most 

circumstances, declare dividends from 

the Deposit Insurance Fund (DIF or 

fund) when the reserve ratio at the end 

of a calendar year exceeds 1.35 percent, 

but is no greater than 1.5 percent.3 In 

that event, the FDIC generally must 

declare one-half of the amount in the 

DIF in excess of the amount required to 

maintain the reserve ratio at 1.35 

percent as dividends to be paid to 

insured depository institutions. 

However, the FDIC’s Board of Directors 

(Board) may suspend or limit dividends 

to be paid, if the Board determines in 

writing, after taking a number of 

statutory factors into account, that: 

1. The DIF faces a significant risk of 

losses over the next year; and 

2. It is likely that such losses will be 

sufficiently high as to justify a finding 

by the Board that the reserve ratio 

should temporarily be allowed to grow 

without requiring dividends when the 

reserve ratio is between 1.35 and 1.5 

percent or exceeds 1.5 percent.4

In addition, the statute requires that 

the FDIC, except in certain limited 

circumstances, declare a dividend from 

the DIF when the reserve ratio at the 

end of a calendar year exceeds 1.5 

percent. In that event, the FDIC 

generally must declare the amount in 

the DIF in excess of the amount required 

to maintain the reserve ratio at 1.5 

percent as dividends to be paid to 

insured depository institutions. 

The FDI Act directs the FDIC to 

consider each insured depository 

institution’s relative contribution to the 

DIF (or any predecessor deposit 

insurance fund) when calculating an 

institution’s share of any dividend. 

More specifically, when allocating 

dividends, the Board must consider: 

1. The ratio of the assessment base of 

an insured depository institution 

(including any predecessor) on 

December 31, 1996, to the assessment 

base of all eligible insured depository 

institutions on that date (the 1996 

assessment base ratio); 

2. The total amount of assessments 

paid on or after January 1, 1997, by an 

insured depository institution 

(including any predecessor) to the DIF 

(and any predecessor fund); 

3. That portion of assessments paid by 

an insured depository institution 

(including any predecessor) that reflects 

higher levels of risk assumed by the 

institution; and 

4. Such other factors as the Board 

deems appropriate. 

The statute does not define the term 

‘‘predecessor’’ (of a depository 

institution) for purposes of distributing 

dividends. Predecessor deposit 

insurance funds are the Bank Insurance 

Fund (BIF) and the Savings Association 

Insurance Fund (SAIF), as those were 

the deposit insurance funds that existed 

after 1996 until their merger into the 

DIF pursuant to the Reform Act. The 

merger was effective March 31, 2006. 

Among other things, the statute 

expressly requires the FDIC to prescribe 

by regulation the method for 

calculating, declaring, and paying 

dividends.5 In May 2006 the FDIC 

issued a proposed rule to implement the 

dividend requirements of the Reform 

Act.6 After considering the comments 

received on the proposed rule, the FDIC, 

as noted above, issued a temporary final 

rule on assessment dividends, with a 

sunset date of December 31, 2008. 

The Temporary Final Rule 

The temporary final rule mirrors the 

dividend provisions of the Reform Act, 

provides definitions (including the 

definition of a ‘‘predecessor’’ depository 

institution) to implement the statute and 

details how an institution may request 

the FDIC’s Division of Finance (DOF) to 

review the FDIC’s determination of the 

institution’s dividend amount and how 

an institution may appeal DOF’s 

response to that request. In the 

temporary final rule, the FDIC adopted 

a simple system for allocating any 

dividends that might be declared during 

the two-year duration of the regulation. 

Any dividends awarded before January 

1, 2009, will be distributed in 

proportion to an institution’s 1996 

assessment base ratio, as determined 

pursuant to the one-time assessment 

credit rule.7

The sole focus of this ANPR is on the 

type of assessment dividend allocation 

method that the FDIC should adopt. 

Whether and how the FDIC should 

retain or revise the other aspects of the 

temporary final rule (such as the 

timetable for determining and paying 

dividends and institutions’ requests for 

review) will be addressed in the notice 

of proposed rulemaking that will follow 

the ANPR. 

II. Alternative Methods 

The ANPR presents two general 

approaches to allocating dividends—the 

fund balance method and the payments 

method. These methods are described 

below.8

The allocation methods potentially 

differ most significantly in the way they 

balance two of the statutory factors that 

the FDIC must consider when allocating 

dividends—institutions’ relative 1996 

assessment bases and assessments paid 

after 1996—and, thus, in the way each 

method treats older versus newer 

institutions. The fund balance method 

implicitly balances the two factors; the 

payments method requires explicit 

decision making. 

‘‘Older’’ and ‘‘Newer’’ Institutions 

In this context, the terms ‘‘older’’ and 

‘‘newer’’ do not simply refer to age. For 

purposes of this ANPR, the smaller an 

institution’s 1996 assessment base is 

compared to its current assessment base, 

the ‘‘newer’’ it is. Thus, an institution 

that was chartered after 1996 and had 

no 1996 assessment base is a newer 

institution. An institution chartered 

before 1996 that has since grown 

greatly—and whose 1996 assessment 

base is, therefore, small compared to its 

current assessment base—is also a 

newer institution. Conversely, the larger 

an institution’s 1996 assessment base is 

compared to its current assessment base, 

the ‘‘older’’ it is. 


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9This group is determined by dividing all 

institutions into 1 of 10 unequally sized groups, 

based on the size of their relative dividend shares 

as of January 1, 2007. Because this date is the 

beginning of the new risk-based assessment system, 

initial dividend shares are proportional to shares of 

the 1996 assessment base. 

10However, an eligible premium would never be 

negative. 

11The Reform Act requires that the FDIC adopt 

a restoration plan whenever the DIF reserve ratio is 

below 1.15 percent or is expected to be below 1.15 

percent within 6 months. The plan must provide 

that the reserve ratio of the DIF will return to 1.15 

percent, ordinarily within 5 years. 12 U.S.C. 

1817(b)(3)(E). 

Relative Dividend Shares 

For purposes of analyzing the effects 

of each allocation method on older and 

newer institutions, the notion of an 

institution’s relative dividend share is 

useful. An institution’s relative 

dividend share at a given time is the 

ratio of its share of any potential 

dividend to its share of the current 

aggregate assessment base. A high 

relative dividend share means that an 

institution would receive more than its 

proportional share of a dividend given 

its current assessment base; a low 

relative dividend share means that an 

institution would receive less than its 

proportional share of a dividend given 

its current assessment base. 

The notion of a relative dividend 

share allows comparison of dividend 

allocation methods by eliminating the 

effect of size. A newer institution would 

initially have a zero or low relative 

dividend share, whatever its size, while 

an older institution (as that term is used 

in this ANPR) would initially have a 

high relative dividend share, again 

regardless of size. 

Some of the most important potential 

differences between the dividend 

allocation methods are how quickly and 

under what circumstances the relative 

dividend share of a newer institution 

would equal the relative dividend share 

of an older institution. Equal shares 

imply that what an institution paid 

prior to 1997 (using the 1996 assessment 

base as a proxy) no longer affects its 

dividend share. Under most variations 

of the dividend allocation methods, the 

relative dividend shares of older and 

newer institutions may never be exactly 

equal, but they may become 

approximately equal; that is, over time, 

for both older and newer institutions, 

shares of any potential dividend may 

approximately equal shares of the 

current aggregate assessment base. For 

purposes of the analysis in this ANPR, 

relative dividends shares will be 

deemed to be approximately equal (or 

be said to have converged) when the 

average relative dividend share of the 

group of institutions that have the 

highest relative dividend shares as of 

January 1, 2007, are no more than 15 

percent greater (or less) than the average 

relative dividend shares of newer 

institutions that initially have no 

dividend shares.9 Under both allocation 

methods, the average relative dividend 

share of the group of institutions that 

would have the highest relative 

dividend shares as of January 1, 2007, 

would be 2.2; that is, in this group, on 

average, an institution’s share of any 

potential dividend would be 2.2 times 

its share of the current assessment base. 

The Fund Balance Method 

Description 

Under the fund balance method, every 

quarter, each institution would be 

assigned a dollar portion of the fund 

balance (its fund allocation), solely for 

purposes of determining the 

institution’s dividend share. Each 

institution’s most recent fund allocation 

(as a percentage of the fund balance) 

would determine its share of any 

dividend. The fund allocation would 

increase or decrease each quarter 

depending upon fund performance and 

assessments paid by each institution. 

Specifically: 

• Initially, the December 31, 2006 

fund balance would be divided up 

among institutions in proportion to 

1996 assessment bases. Thus, initially, 

each institution’s fund allocation would 

equal its 1996 ratio times the December 

31, 2006 fund balance. 

• A variant on this method would 

divide only a portion of the December 

31, 2006 fund balance among 

institutions. The remainder of the fund 

balance would be unallocated. 

• Thereafter, from quarter to quarter, 

fund allocations would grow or shrink 

depending upon the performance of the 

fund. 

• Fund losses, FDIC operating 

expenses and dividends from the fund 

would diminish an institution’s fund 

allocation, all else equal. 

• Fund gains (for example, from 

investment income or ‘‘ineligible’’

premium income, which is discussed 

immediately below) would increase an 

institution’s fund allocation, all else 

equal. 

• In addition, each ‘‘eligible’’

premium would increase an 

institution’s fund allocation, dollar for 

dollar. An ‘‘eligible’’ premium (which 

would need to be defined) would be the 

portion of an institution’s premium that 

would count toward increasing its share 

of dividends. 

• Possible definitions for an eligible 

premium include: (1) All premiums 

charged; (2) premiums charged up to the 

lowest rate charged a Risk Category I 

institution; or (3) something in between, 

for example, premiums charged up to 

the maximum rate for a Risk Category I 

institution, in all cases minus any credit 

use.10 Ineligible premiums would be 

those paid through the use of credits or 

those paid in cash at rates in excess of 

the eligible premium rate. 

• Eligible premiums would include 

surcharges in a restoration plan.11

Risk Reduction Incentives 

As set forth above, when allocating 

dividends the FDIC is required to take 

into account the portion of assessments 

paid by an insured depository 

institution that reflects higher levels of 

risk assumed by that institution. 

Consequently, in defining eligible 

premiums, an important consideration 

(which applies to any approach) is the 

degree to which dividend allocation 

should reinforce the risk incentives of 

the risk-based premium system. Would 

an institution in the riskiest category, 

for example, get credit for dividend 

purposes for the full premium it paid or 

just for some smaller portion? If an 

eligible premium were defined as a 

premium paid at the lowest (least-risky) 

rate, an institution paying the highest 

assessment rate and an institution 

paying the lowest assessment rate 

would increase their dividend shares at 

the same rate, all else equal. Thus, the 

institution paying the lower assessment 

rate on this base would benefit more, 

thereby increasing the incentives for an 

institution to lower the risk it poses. On 

the other hand, if the FDIC defined an 

eligible premium as any cash premium, 

dividend awards, per se, would not 

provide an institution with an incentive 

to reduce the risk it poses. If the FDIC 

defined an eligible premium as 

something in between (for example, 

cash premiums up to the maximum rate 

charged to an institution in Risk 

Category I), the dividend system would 

give those institutions paying higher 

rates than the eligible premium rate 

some incentive to lower risk. 

The Treatment of Older Versus Newer 

Institutions 

Fund performance and assessment 

rates. Under the basic form of the fund 

balance method, in which the entire 

fund would be allocated among 

institutions, low to moderate fund losses 

would lead to older institutions 

retaining a relatively large share of any 

dividends for decades, while newer 

institutions would take decades to 

obtain a relatively similar share of 

dividends. In other words, the 

assessments paid by an institution prior 


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12The results in the text, charts and tables that 

follow: (1) Assume that the entire fund balance is 

allocated among institutions; (2) assume that an 

eligible premium is a premium paid at the 

minimum rate applicable to a Risk Category I 

institution; and (3) are based upon a model that 

divides all institutions into 1 of 10 unequally sized 

groups, based on the size of their relative dividend 

shares as of January 1, 2007. The model assumes 

that all institutions grow at the same rate. It makes 

many other assumptions, as well, including levels 

of assessment rates, investment income, and 

corporate expenses. These assumptions are set out 

in more detail in Appendix B. 

to 1997 (using the 1996 assessment base 

as a proxy) would affect an institution’s 

potential dividend for a very long time. 

On the other hand, large fund losses 

would quickly diminish the relative 

shares of older institutions compared to 

newer institutions.12

Chart 1 illustrates the relative 

dividend shares of two groups of 

institutions—those that initially have no 

dividend shares (the newest group) and 

those with the highest relative dividend 

shares (the oldest group)—under a low 

loss scenario; Chart 2 illustrates the 

relative dividend shares of these two 

groups under a high loss scenario 

similar to the banking crisis of the late 

1980s and early 1990s for the third 

through tenth years, preceded and 

followed by low losses in earlier and 

subsequent years. Assuming high fund 

losses similar to the banking crisis of the 

late 1980s and early 1990s, the relative 

dividend share of the newest group 

could take only 9 years to become 

approximately equal to that of the oldest 

group (i.e., the relative dividend shares 

of each group would be nearly equal to 

one). 


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Using the low loss scenario used in 

Chart 1, Table 1 compares projected 

dividend share and dividends received 

for three institutions, each with $500 

million in deposits on December 31, 

2006; one initially has no dividend 

share (or credits) because it is new; one 

initially has the median relative 

dividend share of those institutions that 

have any initial dividend share (or 

credits); and one initially has a very 

large relative dividend share because it 

is in the oldest group shown in the 

charts above. Table 2 makes the 

comparison under the high loss scenario 

used in Chart 2. The institutions are 

assumed to pay the lowest rate 

applicable in any period. Like Charts 1 

and 2, the dividend share amounts in 

Tables 1 and 2 illustrate that older 

institutions will benefit for many years 

from this method absent a repeat of the 

banking crisis era. 

The low loss scenario in Chart 1 and 

Table 1 (and in subsequent charts in 

tables) assumes annual insurance losses 

that are significantly lower than the 

average annual losses for the past 10 

years and that the Board would not 

lower rates below the base assessment 

rate schedule (2 to 4 basis points for 

institutions in Risk Category I). In fact, 

if the Board did lower assessment rates 

sufficiently below the base rate 

schedule, the dividends shown in Chart 

1 would not occur. 

BILLING CODE 6714–01–P 


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13The FDIC’s definition of an ‘‘eligible’’ premium 

would have some effect on the way the fund 

balance method allocates dividends between newer 

and older institutions, considered as a group. The 

lower the eligible premium rate, the longer older 

institutions, as a group, would retain a relatively 

larger share of dividends, all else equal. 

14A simplified version of the payments method 

would substitute assessment bases as proxies for 

eligible premiums. Each institution’s share of any 

dividend would depend on its portion of the 1996 

assessment base, weighted in some fashion, and its 

cumulative quarterly assessment bases under the 

new system. In this version, an institution would 

automatically have an added incentive to be 

charged the lowest possible rate, since, given 

identical assessment bases, an institution paying 

the lowest assessment rate would increase its 

dividend share at the same rate as an institution 

paying the highest assessment rate, all else equal. 

15The low loss scenario in Chart 3 and Table 3 

again assumes annual insurance losses that are 

significantly lower than the average annual losses 

Continued 

All else equal, higher assessment rates 

(whether to cover rapid insured deposit 

growth or from other causes) would 

shorten the time to convergence of 

relative dividend shares of older and 

newer institutions. However, the effect 

of higher rates would likely be less 

marked than the effect of high fund 

losses similar to those during the 

banking crisis of the late 1980s and 

early 1990s. 

Institutions chartered in the future. 

Absent significant insurance fund 

losses, the fund balance will tend to 

increase over time. Under the fund 

balance method, all else equal, the 

larger the fund grows, the longer it 

would take an institution chartered in 

the future to obtain a share of potential 

dividends that was roughly equal to its 

share of the assessment base; that is, for 

its relative dividend share to 

approximately equal that of older 

institutions. Thus, an institution 

chartered 30 years from now could take 

many decades to obtain a share of 

potential dividends that was roughly 

equal to its share of the assessment base. 

Simplicity 

The fund balance method relies on 

more data than the payments method 

described below and is more complex, 

which may reduce transparency. Both 

methods of fund allocation discussed in 

this ANPR are operationally feasible, 

however. 

Remaining Decision-Making 

Requirements 

Both methods require the FDIC to 

define eligible premiums. Once the 

definition of an eligible premium is 

chosen, however, the fund balance 

method allocates dividends among older 

and newer institutions automatically, 

without the need for explicit FDIC 

decision making about the relative 

importance to assign the 1996 

assessment base compared to post-1996 

eligible premiums.13 Only if the FDIC 

adopted the variant of this method in 

which something less than the 

December 31, 2006 fund balance was 

allocated among older institutions 

would it make explicit decisions about 

how to allocate dividends between older 

and newer institutions. 

The Payments Method 

Description 

In its basic form, under most probable 

scenarios, the fund balance method 

would most likely benefit older 

institutions. The payments method, on 

the other hand, offers considerably more 

options for allocating dividends 

between older and newer institutions. 

The payments method could be 

constructed so as to benefit older 

institutions for many years, or it could 

be constructed to accelerate 

convergence between older and newer 

institutions. 

Under the payments method, unlike 

the fund balance method, neither fund 

performance nor dividends paid would 

affect dividend shares directly. Rather 

than hinging on its assigned portion of 

the fund balance, an institution’s share 

of any dividend would depend upon its 

(and its predecessors’) 1996 assessment 

base (or, equivalently, its 1996 ratio), 

weighted in some manner, and its 

quarterly assessments under the new 

assessment system. Specifically: 

• Initially, each institution’s dividend 

share would depend upon its 1996 

assessment base compared to all other 

institutions. For example, initially, each 

institution’s dividend share could equal: 

1. Its 1996 ratio times the fund 

balance on December 31, 2006; 

2. Its 1996 ratio times the fund 

balance at some other time; or 

3. Its 1996 ratio times insurance fund 

assessment income over some period of 

time leading up to December 31, 1996, 

in each case as a percentage of the total 

for all institutions. 

• The resulting value assigned to each 

institution based on its 1996 ratio could 

either remain unchanged or be assigned 

a declining weight over time. 

• The possible definitions of an 

eligible (and an ineligible) premium are 

the same as those under the fund 

balance method. However, under certain 

variations of this method discussed 

below, assessments offset through credit 

use could increase an institution’s 

dividend share. 

• Cumulative eligible premiums paid 

into the fund since 1996 would add to 

an institution’s share. 

• Alternatively, the FDIC could count 

only eligible premiums paid over some 

recent period, for example, the most 

recent 3, 5, 10 or 15 years. In contrast, 

the fund balance method would 

necessarily take into account all 

assessment payments made under the 

new assessment system. 

• Another variation would allow the 

FDIC to subtract dividends paid to an 

institution from its eligible premiums. 

The Board would explicitly determine 

the relative importance to assign to each 

institution’s 1996 assessment base and 

to its eligible premiums paid under the 

new system. The rate at which the 

relative importance of eligible 

premiums paid under the new system 

increased (and the relative importance 

of the 1996 assessment base decreased) 

could be slow or fast. Alternatively, the 

FDIC could, at the outset of the system, 

reserve the right to change the balance 

in the future.14

Risk Reduction Incentives 

As under the fund balance method, 

the degree to which dividend allocation 

would reinforce the risk incentives of 

the risk-based premium system would 

depend upon the FDIC’s definition of an 

eligible premium. 

The Treatment of Older Versus Newer 

Institutions 

Relative weight of the 1996 

assessment base. The relative weight to 

be accorded the 1996 assessment base 

could have a great influence on how 

quickly the relative dividend shares of 

newer and older institutions would 

converge. 

How the payments method would 

affect the dividend shares of older and 

newer institutions would depend on the 

weight that the Board assigned the 1996 

assessment base (initially and over time) 

compared to the weight it assigned 

eligible premiums paid each year after 

1996. Two illustrative variations of the 

payments method are described below. 

Variation 1. The Board could, as 

under the fund balance method, initially 

divide the 2006 fund balance based on 

each institution’s share of the December 

1996 assessment base. Eligible 

premiums after 1996 would be added to 

that amount. As illustrated in Chart 3 

and Table 3, this method of 

implementation would result in older 

institutions retaining relatively large 

dividend shares for many years—similar 

to the fund balance method—given low 

losses. (Compare with Chart 1 and Table 

1.) 15


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for the past 10 years and that the Board would not 

lower rates below the base assessment rate schedule 

(2 to 4 basis points for institutions in Risk Category 

I). In fact, if the Board did lower assessment rates 

below the base rate schedule, the dividends shown 

in Chart 3 and Table 3 would not occur. See also 

footnote 13. 


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16Chart 4 and Table 4 assume that an institution’s 

dividend share is initially determined by 

multiplying its 1996 ratio times the fund balance at the end of 2006 and adding eligible premiums over 

time. See also footnote 13. 

Under the payments method—unlike 

the fund balance method—fund gains 

and losses would not directly affect an 

institution’s relative dividend share. 

However, higher insurance fund losses 

could lead to higher assessment rates, 

which would affect relative dividend 

shares. All else equal, higher assessment 

rates (either resulting from fund losses 

or rapid insured deposit growth) would 

tend to make the relative dividend 

shares of older and newer institutions 

converge more quickly. However, as 

illustrated in Chart 4 and Table 4, the 

effect of an increase in higher 

assessment rates on relative dividend 

shares would not be as large as the 

direct effect of large insurance losses 

under the fund balance method. 

(Compare with Table 2 and Chart 2.) 16


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17For years prior to 1990, deposit insurance fund 

assessment income used to produce Chart 5 and 

Table 5 includes such income for both the FDIC and 

the Federal Savings and Loan Insurance 

Corporation. 18The low loss scenario in Chart 5 and Table 5 

again assumes annual losses that are significantly 

lower than the average annual losses for the past 10 

years and that the Board would not lower rates 

below the base assessment rate schedule (2 to 4 

basis points for institutions in Risk Category I). In 

fact, if the Board did lower assessment rates below 

the base rate schedule, the dividends shown in 

Chart 5 and Table 5 would not occur. See also 

footnote 13. 19 If eligible premiums did not include eligible 

premiums offset with credits, newer institutions 

would actually have higher relative dividend shares 

than older ones after 15 years (because older 

institutions would use credits in early years, which 

would reduce their eligible premiums). Thereafter, 

however, the dividend shares of older and newer 

institutions would tend to converge again. 

20A high loss scenario would lead to a more rapid 

convergence. 

Variation 2. Another way to 

implement the payments method would 

be to consider only premiums paid over 

some prior period (such as the previous 

15 years). When the prior period 

covered any year before 2007, the years 

1997 through 2006 would be skipped, 

since the great majority of institutions 

paid no deposit insurance premiums 

then. Thus, for example, to determine 

dividend shares at the end of 2009, the 

method would consider premiums paid 

from 1985 through 1996 and from 2007 

through 2009. Premiums paid during 

2007, 2008 and 2009 would include 

only eligible premiums. However, 

because the weight accorded the 1996 

ratio would effectively decline to zero 

over time, eligible premiums after 2006 

would include eligible premiums offset 

with credits. An eligible premium paid 

in 1996 or any earlier year would be 

calculated as an institution’s share of 

the 1996 assessment base times total 

deposit insurance fund assessment 

income in that year.17

As illustrated in Chart 5 and Table 5, 

newer and older institutions would 

have equal relative dividend shares after 

15 years.18 19 20


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21The simplification of the method in which 

assessment bases are used as a proxy for actual 

payments requires only that institutions and the 

FDIC retain data on assessment bases. 

The relative dividend shares of older 

and newer institutions would converge 

similarly if an institution’s dividend 

share were initially determined by 

multiplying its 1996 ratio by the fund 

balance at the end of 2006 and adding 

eligible premiums over time, where the 

weight accorded the 1996 ratio 

diminished linearly and steadily to zero 

over 15 years (again allowing eligible 

premiums to include eligible premiums 

offset with credits). However, 

institutions chartered in the future 

would be at a greater disadvantage than 

if only recent payments (e.g., those 

made within the previous 15 years) 

were considered. 

In general, the length of time it would 

take an institution chartered in the 

future to obtain a share of potential 

dividends that was roughly equal to its 

share of the assessment base would 

depend to a great extent upon the 

relative weight to be accorded the 1996 

ratio. If the 1996 ratio (or 1996 

assessment base) were heavily weighted 

and payments accumulated indefinitely, 

it could take an institution chartered in 

the future many years to obtain an equal 

share of potential dividends. However, 

if the 1996 ratio received a small weight 

and only very recent assessments (rather 

than cumulative payments) were 

considered, it would take an institution 

chartered in the future only a short time 

to obtain an equal share of potential 

dividends. 

Simplicity 

The payments method would require 

less data than the fund balance method 

and would be relatively easy to 

administer. If the payments method 

considered only recent payments (e.g., 3 

or 5 years), data needs and record 

retention requirements for the industry 

and the FDIC would be particularly 

simple.21

Decision-making 

Like the fund balance method, the 

payments method would require that 

the FDIC define eligible premiums. 

Under the payments method the FDIC 

would have considerably more options 

regarding the allocation of dividends 

between older and newer institutions 

than it would under the fund balance 

method. The FDIC would decide: 

• How much weight to accord the 

1996 assessment base compared to 

premiums paid under the new system; 

• Whether that weight should change 

over time and whether the FDIC should 

reserve the right to change the weight in 

the future; and 

• Whether all payments under the 

new system should be considered or 

only more recent payments. 

III. Request for Comments 

The FDIC requests comment on all 

aspects of the fund balance method and 

the payments method, and on any 

alternative approach not presented in 

this ANPR that a commenter chooses to 

discuss. In particular, the FDIC invites 

comment on the following: 

1. Which method is preferable and 

why? 

2. Is a method not presented in this 

ANPR preferable? If so, why? 

3. Is there a variation or way of 

implementing any method that is 

preferable or less preferable? If so, why? 

4. How should an eligible premium 

be defined and why should it be so 

defined? 

5. If the payments method were 

selected: 

(a) Are any of the two illustrative 

variations more or less preferable? 

(b) Should eligible premiums be 

considered only over some limited prior 

period, such as 3, 5 or 10 years? 

(c) Should premiums paid with 

credits count toward dividend share, as 

described in the second illustrative 

variation? 

(d) Should premiums paid over some 

very recent period (e.g., the previous 

year) be excluded to avoid creating an 

incentive for institutions to increase 

their assessment base and assessments 

in hope of obtaining a larger dividend? 

(e) Should dividends paid to an 

institution be subtracted from its 

eligible premiums? 

(f) How should the 1996 assessment 

base be taken into account or weighted? 

How quickly should its relative 

importance decrease over time? Should 

the FDIC reserve the right to change its 

relative importance in the future? 

6. Is any method particularly 

burdensome or not burdensome? 

7. Any other aspects of either of the 

two methods or of a method not 

presented in this ANPR. 

Appendix A—Definition and 

Description of the Fund Balance 

Method 

An institution’s dividend share would 

equal the dollar portion of the fund balance 

assigned to it (its fund allocation) as a 

percent of the total adjusted fund balance. An 

institution’s dividend share would be 

defined recursively. Its initial dividend share 

(DSi,0), on January 1, 2007, would be: 

where ai,0 is institution i’s fund allocation on 

January 1, 2007, and F0 is the fund balance 

as of December 31, 2006. 

For quarters ending after December 31, 

2006, adjusted fund balances are used. An 

adjusted fund balance differs from the actual 

fund balance by excluding estimated 

premium income for the quarter. Premiums 

earned for each quarter would be estimated 

because they would not be determined for, 

and collected from, each institution until the 

following quarter. 

An institution’s fund allocation at time 0 

would be derived from its share of the 1996 

aggregate assessment base. Therefore, 

equation (1) can be restated as: 

In the equation above, fi is the share of the 

1996 aggregate base for institution i and is 

calculated as: 


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22However, an institution might fail after the end 

of the quarter on which dividend shares are 

calculated (which will always be the fourth 

quarter), but before distribution of a dividend. 

Consequently, a final adjustment of dividend shares 

may be necessary. This share would be calculated 

as follows: 

See equation 8 above. 

where DSi,B is institution i’s dividend share at the 

time a dividend is distributed, B is the time at 

which a dividend is distributed, and mB is all 

institutions at time t that had not failed as of time 

B. 

where ab96i is 1996 assessment base for 

institution i and j = 1 through N represents 

all institutions. Institutions that did not exist 

on December 31, 1996 or are not successors 

to institutions in existence then would have 

1996 ratios set to zero. 

An institution’s dividend share for each 

succeeding quarter (DSi,t) would be: 

where DSi,t is institution i’s dividend share 

at time t, t is the end of the most recent 

quarter for which the fund balance is 

available, ai,t is institution i’s fund allocation 

at time t and Ft is the adjusted fund balance 

at time t. 

Institution i’s fund allocation at time t, ai,t, 

in the equation (4) is derived as: 

where ht is an adjustment factor accounting 

for the growth or shrinkage of the adjusted 

fund balance (as defined above) from t-1 to 

t after excluding eligible premiums for the 

quarter ending at time t-1 that were collected 

at time t, rt is a redistribution factor that 

redistributes the shares of institutions that 

failed after time t-1 but before time t and pi,t

is eligible premiums paid by institution i at 

time t for the quarter ending at time t-1. 

The adjustment factor for the growth or 

shrinkage of the adjusted fund balance, ht, is 

calculated as: 

where mt is all institutions in existence at 

time t. The redistribution factor, rt, is 

calculated as:22

Definition and Description of the Payments 

Method 

An institution’s dividend share, DSi,t, 

would be defined as: 


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23Under Variation 2 described in the text, T-k 

would not include any year before 2007. When a 

dividend share in any year depended upon 

premiums paid before 1997, the premiums would 

be factored into wT rather than being included in 

pi,t. 

24 If an institution failed after the end of the 

quarter on which dividend shares were calculated 

(which will always be the fourth quarter), but before 

distribution of a dividend, a final adjustment of 

dividend shares may be necessary. This share 

would be calculated simply by deleting the failed 

institution’s payments and 1996 ratio from the 

preceding formulas. 

where DSi,T is institution i’s current dividend 

share, T is the end of the most recent quarter 

for which assessment base data is available, 

wT is the weight assigned to the 1996 ratio 

for period T, ab96,i is the 1996 assessment 

base for institution i, T-k is the earliest 

period to be covered, which could be all 

periods after 2006 or some recent period, 

such as the most recent 3, 5, 10 or 15 years, 

pi,t is eligible premiums paid by institution 

i at time t for the quarter ending at time t1, and mT is total institutions as of time 

T.23, 24

Appendix B—Model Assumptions 

Among other things, the model assumes 

the following: 

1. Investment income in 2007 equals 4.7 

percent of the start-of-year fund balance. For 

each year thereafter, it equals 4.57 percent of 

that year’s starting fund balance. These 

estimates are based on projections from an 

investment model that relies on Blue Chip 

forecasts of the yield curve through 3rd 

quarter 2008. 

2. The initial assessment rate schedule is 

3 basis points above the base rate schedule; 

thus, the initial minimum rate is 5 basis 

points. Rates fall to base rates the year after 

the fund reserve ratio reaches or exceeds 1.25 

percent. Risk Category I institutions that pay 

rates between the minimum and maximum 

rate for the category are assumed to pay 0.6 

basis points above the minimum rate, which 

reflects the current weighted average rate for 

the group. 

3. Any restoration plan is assumed to be a 

5 year plan. Surcharges in a restoration plan 

are estimated using an iterative procedure to 

account for the effect of credit use. During a 

restoration plan, an institution may use no 

more than 3 basis points in credit use. 

4. Operating expenses for 2007 are $988 

million and grow at an annual rate of 5 

percent thereafter. 

5. Insured and domestic deposits are 

assumed to grow at 5 percent per year. 

6. The beginning fund balance at 2007 

equals $50,165 million. 

7. Credit use is limited by the 90 percent 

rule during 2008, 2009, and 2010. (No 

institution may apply credits to offset more 

than 90 percent of an assessment for these 

years.) 

8. Institutions are assigned to 1 of 10 credit 

groups and 1 of 6 assessment rate groups 

based on December 31, 2006 Call Report and 

TFR data, CAMELS information, and onetime credits. An institution’s credits are 

determined by its share of the December 31, 

1996 assessment base. An institution’s credit 

group is determined by the ratio of its credits 

to its December 31, 2006 deposits. Because 

an institution’s initial relative dividend share 

is determined analogously, based upon the 

ratio of its share of the December 31, 1996 

assessment base to its share of the December 

31, 2006 deposits, institutions in the same 

credit group will have similar relative 

dividend shares. In the tables and charts in 

the text comparing the relative dividend 

shares under alternative allocation methods, 

the ‘‘oldest’’ group refers to the credit group 

with the most credits relative to their 

December 31, 2006 deposits, those whose 

credits are more than 12 basis points of their 

December 31, 2006 deposits. The initial 

weighted average of credits-to-deposits for 

the credit group is 15.6 basis points. 

9. High fund losses correspond to the 

losses incurred by the Bank Insurance Fund 

from 1987 to 1994, with losses measured 

relative to total domestic deposits. Low fund 

losses assume losses are equal to 0.1 basis 

points of domestic deposits each year. 

Dated at Washington, DC, this 11th day of 

September, 2007. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 07–4596 Filed 9–17–07; 8:45 am] 

BILLING CODE 6714–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 23 

[Docket No. CE273; Notice No. 23–07–03–

SC] 

Special Conditions: Adam Aircraft 

Industries Model A700; External Fuel 

Tank Protection During Gear-Up or 

Emergency Landing 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed special 

conditions. 

SUMMARY: This notice proposes special 

conditions for the Adam Aircraft 

Industries Model A700 airplane. This 

airplane will have a novel or unusual 

design feature(s) associated with an 

External Centerline Fuel Tank (ECFT) 

that increases the total capacity of fuel 

by 184 gallons. The tank is located 

below the fuselage pressure shell 

immediately below the wing. The Adam 

A700 ECFT is a novel, unusual and a 

potentially unsafe design feature that 

may pose a hazard to the occupants 

during a gear-up or emergency landing 

due to fuel leakage and subsequent fire. 

Traditional aircraft construction places 

the fuel tanks in a protected area within 

the wings and/or fuselage. Fuel tanks 

located in these areas are well above the 

fuselage skin and are inherently 

protected by the wing and fuselage 

structure. The applicable airworthiness 

regulations do not contain adequate or 

appropriate safety standards for this 

design feature. These proposed special 

conditions contain the additional safety 

standards that the Administrator 

considers necessary to establish a level 

of safety equivalent to that established 

by the existing airworthiness standards. 

DATES: Comments must be received on 

or before November 19, 2007. 

ADDRESSES: Comments on this proposal 

may be mailed in duplicate to: Federal 

Aviation Administration (FAA), 

Regional Counsel, ACE–7, Attention: 

Rules Docket, Docket No. CE273, 901 

Locust, Room 506, Kansas City, 

Missouri 64106, or delivered in 

duplicate to the Regional Counsel at the 

above address. Comments must be 

marked: CE273. Comments may be 

inspected in the Rules Docket 

weekdays, except Federal holidays, 

between 7:30 a.m. and 4 p.m. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Peter L. Rouse, Federal Aviation 

Administration, Aircraft Certification 

Service, Small Airplane Directorate, 

ACE–111, 901 Locust, Kansas City, 

Missouri, 816–329–4135, fax 816–329–

4090. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

Interested persons are invited to 

participate in the making of these 

proposed special conditions by 

submitting such written data, views, or 

arguments, as they may desire. 

Communications should identify the 


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